GBP/USD unable to regain 1.3200, focus turns to BoE speak

• GBP/USD trades flat on the day, with gains seemingly capped at the 1.3200 mark for now.
• Deadlocked Brexit talks remain front and centre for GBP traders, although incoming BoE speak may briefly steal the limelight.

GBP/USD trades flat lower on Monday, Asia session gains that took the pair above the 1.3200 level having been erased during the early part of the European session.

Brexit deadlock drags on, but GBP remains resilient

The tone of Brexit developments remains downbeat, with no indications yet that a deal is close. As has been the case for months, the major sticking points are still fisheries, state aid and governance. In terms of the latest;

Over the weekend, EU sources reportedly said that there was less progress in recent days on outstanding Brexit sticking points than they had hoped for and that the “moment of truth” is approaching. UK sources confirmed that big gaps remain.

Moreover, Irish Foreign Minister Coveney said on Monday that fishing negotiations are not in a good place and are pretty much in the same place as they were in mid-Summer, with only minor concessions having been discussed. Meanwhile, EU diplomats this morning hinted that “personnel changes at No.10 may be distracting the UK, depriving British Trade Negotiator David Frost of clear guidance on how far he can go to seal the deal”, in reference to the recent departure of one of UK PM Boris Johnson’s most important advisor, arch-Brexiteer Dominic Cummings, from government services.

Despite pessimism being expressed on both sides, market sensitivity to Brexit news seems to have decreased in comparison to recent weeks, with GBP trading flat on the day despite the above. A possible explanation for this is the fact that many analysts are of the view that, though talks are deadlocked right now, minds will eventually focus as the defacto 31 December 2020 deadline for a deal (the day before the transition period ends) approaches. That deal will eventually be agreed upon remains to base case for most.

Looking ahead, GBP traders will shift their focus to the Bank of England, with speeches from Monetary Policy Committee members Tenreyro at 16:00GMT and Haskel at 17:30GMT; Tenreyro delivers a webinar on the bank’s Monetary Toolkit (thus, GBP could be sensitive), while Haskel participates as a panelist at the All-Parliamentary Group on Artificial Intelligence “AI technologies in the post-Covid-19 recovery of the UK economy” (thus, comments on monetary policy are less likely and his comments are less likely to move GBP).

GBP/USD snaps Friday’s uptrend but the long-term technical picture remains bullish

Early in Monday’s European session, GBP/USD broke below last Friday’s uptrend (see the 1-hour chart below), snapping last Friday’s short-term bullish momentum and dipping back below 1.3200. Confirming the break of this trendline, the pair rejected a retest shortly before midday London time and has since been rangebound between daily lows around 1.3165 and the 1.3200 mark.

Outside of this range, the most significant support levels of note are a long-term uptrend linking the 2, 4, 5 and 13 November 2020 lows (at roughly 1.2850, 1.2920, 1.2940 and 1.3110 respectively), which ought to come into play around 1.3150. Below that, there is last week’s lows just above 1.3110, as well as the psychological 1.3100 level. In terms of resistance, the 1.3200 mark is acting as a significant barrier at the moment, but beyond that, there is Monday’s high is just above 1.3240, followed by the psychological 1.3300 level and last week’s high just above it.

GBP/USD continues to sit significantly above its 200, 50 and 21 day moving averages (at 1.2713, 1.2970 and 1.3062 respectively) and somewhere around the middle of a longer-term upwards trend channel that, to the upside, links the 16 September, 21 October and 11 November highs (at roughly 1.3000, 1.3180 and 1.3280 respectively) and to the downside, links the 23 September and end-October/early-November lows (at roughly 1.2700 and 1.2900 respectively).

GBP/USD four hour chart

GBP/USD one hour chart (1)

GBP/USD one hour chart (2)